Some colour on the distribution of pay rises
Workers securing pay rises are achieving large increases.
Although the RBA has recently swung back to emphasising the importance of nominal unit labour costs - which are labour costs adjusted for labour productivity - to the outlook for inflation, it still regards the wage price index as the best pure measure of wage pressures.
The wage price index shows annual wages growth has picked up from a pandemic low of 1.4% to 3.6% in Q2, where the latest growth rate was again a little less than expected by both the market and the RBA (private-sector wages growth has picked up from a COVID low of 1.2% to 3.8%, while the recovery in public-sector growth has lagged, with current growth only 3.1%).
This recovery in wages growth has been broadly based, with annual growth now 3.5% or more in about 80% of
industries, which is the highest share since 2011 (about 30% of industries have
wages growth of 4% or more, which is the most since 2012).
Most of the pick-up in wages over the past couple of years has come from a recovery in independent wage agreements, although award wages are making a larger contribution reflecting last year's mandated pay rise of 4.6% (note that this year's 5.75% increase in award wages will be captured by the wage price index mainly in Q3).
In contrast, enterprise bargaining agreements are still making a moderate contribution to wages growth thanks to the inertia introduced by their typical duration of about three years.
That said, there should still be a significant acceleration in wages growth if the pace of current wage gains is maintained, in that just over 20% of private-sector workers are currently securing a pay rise each quarter and the average pay increase has picked up to 4.5%, which is the most since data became available in 2010.
The ABS said that these large pay rises reflect annual pay reviews for individual wage agreements and CPI-linked pay rises for some enterprise bargaining agreements.
The trend in the public sector is less striking, with about one-quarter of workers securing pay rises averaging about 3%, although the Victorian government recently relaxed its wage cap and the New South Wales government scrapped its cap.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy, contributing to the investment decisions of the firm. Kieran has long experience as a macroeconomist in both the private and public sectors. He has worked most recently as Chief Markets Economist for National Australia Bank and was previously Chief Economist, Australia and New Zealand, for Barclays Bank and ABN Amro Bank/RBS. Kieran also worked as Principal Adviser on the macroeconomy and budget policy in the Commonwealth Treasury and Director of Forecasting.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
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